Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/239381 
Year of Publication: 
2020
Citation: 
[Journal:] Journal of Risk and Financial Management [ISSN:] 1911-8074 [Volume:] 13 [Issue:] 12 [Publisher:] MDPI [Place:] Basel [Year:] 2020 [Pages:] 1-30
Publisher: 
MDPI, Basel
Abstract: 
During financial crises, liquidity tends to become scarce, a problem that disproportionately affects small companies. This paper shows that obligation-clearing is a very effective liquidity-saving method for providing relief in the trade credit market and, therefore, on the supply-side or productive part of the economy. The paper also demonstrates that when used in conjunction with a complementary currency system such as mutual credit as a liquidity source the effectiveness of obligation-clearing can be doubled. Real data from the Sardex mutual credit system show a reduction of net internal debt of the obligation network of approximately 25% when obligation-clearing is used by itself and of 50% when it is used together with mutual credit. These instruments are also relevant from the point of view of risk mitigation for lenders, based in part on the information on individual companies that the mutual credit circuit manager can provide to banks (upon the circuit member's request) and in part on the relief that liquidity-saving provides especially to NPL companies. The paper concludes by outlining recommendations for how even greater savings could be achieved by including the tax authority as another node in the obligation network.
Subjects: 
invoice-netting
obligation-clearing
mutual credit
trade credit market
liquidity-saving
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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